Alan Johnson MP

The Made in London - The London Manufacturer's Group Annual Dinner

London

Wednesday, February 28, 2001

I am delighted to have the opportunity to speak to you tonight about some of the challenges and opportunities facing manufacturing industry in the UK and the role for government.

MANUFACTURING MATTERS

I don't need to tell this audience how important manufacturing is to this country. A strong manufacturing sector is an integral part of the economy. It is vital to our ability to compete in the future and an essential part of our wealth creation process. It accounts for 20% of our national income - almost £150 billion a year in GDP. Manufacturing employs 4 million people directly and at least two and half million service sector jobs depend on manufacturing. Manufactured goods make up over 60% of UK exports by value.

In London, manufacturing accounts for over 10% of GDP and nearly 300,000 jobs, ranging widely from the traditional clothing and textiles sector to specialised high value added growth areas such as pharmaceuticals, optical instruments and computer and electronic systems.

RECENT PROFILE OF MANUFACTURING

UK manufacturing is going through difficult times. The exchange rate has caused difficulties for our exporters, particularly those exporting to Europe.

Sectors with low margins such as steel, or where there is excess global capacity such as in car manufacturing, have faced huge difficulties as have heavy engineering and textiles. And the long-term structural shift away from low value-added products has been, and remains, a source of continuing painful restructuring in traditional industries.

Sectors such as aerospace, fibre optics, and some chemicals are doing well. UK aerospace employment increased by 20% - nearly 14,000 extra jobs - between 1998 and 2000. In the last year over 7,000 new R&D and manufacturing jobs have been announced in the UK fibre optics industry.

MANUFACTURING CHANGES OVER TIME

What is essential for Government to emphasise and repeat at every opportunity is that manufacturing is a crucial part to the knowledge driven economy of the 21st century. Not two types of economy - there is one.

And manufacturing companies are rising to the enormous challenges that they face.

After years of decline, manufacturing output is again rising. Up by 1.6% over the last year, the fastest rise since 1994. Productivity is also rising - up by around 3.5% in the last year - after years of stagnation in the early and mid 1990s. London has the second highest level of labour productivity across the English regions. Exports of manufactured goods are up by over 9%. Exports overall are over 8.5% higher than a year ago, and up by over 6.5% to our EU partners.

And whilst it is true that some companies are relocating to mainland Europe, many others have found it more advantageous to locate in the UK. Indeed, record levels of inward investment show that the UK is still recognised as a good place to do business in Europe. In recent weeks, both Toyota and Nissan have committed to substantial new investment in the UK. They have demonstrated confidence in the economic stability and favourable business environment that this country enjoys.

CHALLENGES AND OPPORTUNITIES

At their best our manufacturing companies, big and small, are world class and forward looking. Investing in new technologies and equipment; providing skills and training to their workforce; and winning new markets and opportunities.

But we recognise the very real difficulties that some sectors and companies are facing.

Global markets and the introduction of new technology mean that this is a period of major business change and restructuring.

All sectors have to adapt to compete in the future.

The government of business is not the business of government but we have a role to help open up new opportunities for industry and to enable established industries to modernise.

London is well placed at the heart of the knowledge economy. It has a highly skilled and educated workforce - over a third of London workers hold degrees or equivalent qualifications. It has a strong research base and good access to finance. It has a strong entrepreneurial culture. The region has the strongest record of new business formation in the UK, an estimated 60,000 each year. However, 40% do not survive beyond the first three years.

The challenge is to create an environment where all business, from the traditional to the new, exploit the opportunities presented by the knowledge economy.

ROLE OF GOVERNMENT

The White Paper 'Opportunity For All In A World Of Change' launched this month presents a way forward. It shows how new government policies can bring real benefits to the region. Through the package of measures contained in the White Paper, as well as the Government's wider economic policies, we intend to help London and other regions build a diversified, economy. But first, we must get the fundamentals right. We have established a platform of economic stability - the only sound base for competitive enterprise in a global economy. We took tough decisions early on to make the Bank of England independent and to put in place a proper fiscal framework. As a result, inflation is now at a 30-year low, the lowest in Europe. Long-term UK interest rates are around their lowest levels for over 35 years. We have cut borrowing by £44 billion, enabling us to invest in our infrastructure, in education and training and in our science base - all of which benefit manufacturing.

We are driving forward an active industrial policy. To extend manufacturing excellence - investing in skills, making the most of new technology, supporting industries of the future, raising innovation in every region.

We are helping established industries to modernise and compete in new markets. In sectors such as aerospace, oil and gas, metals and chemicals we are supporting industry forum adaptation programmes, to enable industry to adopt best practice in production and supply chain management.

And in textiles. Where we have introduced a package of measures, backed with over £10 million of Government funding, to enable the textiles industry to meet the challenges of the modern economy.

Where companies are facing major change, such as Ford in Dagenham, the Government is working with them to minimise the impact on workers and communities and maximise economic development opportunities for the future.

REGIONAL AGENDA

The Government's White Paper sets out our new regional agenda. To expand the winners circle to every region, with enterprise, innovation and skills at the core of self-sustaining growth. We now have a target to improve the prosperity of every region above its historic trend rate of growth.

The White Paper provides a framework in which Regional Development Agencies can take forward their Economic Strategies. The objective is to strengthen the ability of businesses and individuals to succeed in our rapidly changing economy, help them adjust to new market opportunities and assist individuals make the most of the opportunities for developing their skills and talent. In London, the London Development Agency has significant resources to help deliver its strategy currently out to consultation.

REGIONAL INNOVATION FUND

Through the Regional Innovation Fund we are giving RDAs greater freedom to promote regional competitiveness, innovation and therefore economic prosperity within their regions. London's allocation is £5.8m next year.

In addition, the White Paper will provide new monies aimed at start-ups, and there will be a new national £75 million incubator fund operated by the Small Business Service

SKILLS AND EDUCATION

In addressing our wider skills needs, we need a step improvement in the quality and quantity of learning. This is vital if we are to achieve prosperity and economic competitiveness.

In the White Paper we have set out for the first time a truly joined up strategy for skills and business development. The White Paper will strengthen the LDA's proposals through the establishment of new technology institutes in London. These will improve workforce skills, and training in ICT and new technologies.

This is all against the backdrop of the new Learning and Skills Council, which comes fully into being at the end of March. The five local Learning and Skills Councils in London will have strong representation from local businesses and local communities. They will work in tandem with the London Development Agency and other partners, to ensure that the skills needs of London's businesses are identified and can be met - as far as possible - from within London's own workforce.

Support for Business, particularly manufacturing

The White Paper sets out a wide range of measures for building manufacturing excellence - investing in skills, making the most of new technology, supporting industries of the future, raising innovation in every region.

We will establish new University Innovation Centres to enable universities and businesses to collaborate on large scale research and development.

But we need to be concerned not only with those industries at the leading edge. We must also help those industries which are struggling to keep up with the latest technologies and best practices.

As knowledge advances and technology becomes more complex, there is an increasing need to help manufacturers - especially smaller firms - to achieve manufacturing excellence.

Last year, the Secretary of State announced that in each region we will establish a Manufacturing Centre of Excellence to respond to the needs of smaller manufacturing firms.

We are now going to build on that proposal, working with the Development Agencies to establish a new Manufacturing Advisory Service.

This will provide practical, "hands on" help for smaller manufacturing firms who want to introduce world class manufacturing practices and technologies.

The arrival in April of a single pan-regional Business Link in London - London Business Link - will provide the capital with an inclusive approach to business support through its linkages with the capital's chambers of commerce and the wider Managed Network of business support providers. London Business Link is contributing to the development of Knowledge Centres (formerly Centres of Expertise) within London, including a centre for manufacturing.

Manufacturing in London also benefits from support under the Single Regeneration Budget. A round 5 Single Regeneration Budget scheme will provide for a Centre of Excellence for advanced manufacturing and diesel engineering technology at Dagenham. Three other schemes under Round 6 including one championed by Made In London, will provide a range of support for training, improving industrial estates and promoting manufacturing as a career.

TRANSPORT

Transport is a major issue for London.

The recent spending review and "Transport 2010 - The 10 Year Plan" contained excellent news for London. Over the next three years, the resources available to the Mayor for transport in London are set to double to £3.2 billion, compared with previous plans. Over ten years, total public expenditure and private investment will be £25 billion, with any revenue from congestion charging being in addition to this.

The Mayor has put transport at the top of his agenda, and is currently consulting on a draft of his transport strategy. I would urge you all to play a full part in this consultation exercise and ensure that the manufacturer's voice is heard in this important debate.

CONCLUSION

We understand the challenges which manufacturing industry faces, but there are no simple solutions.

There has been a shift in the location of manufacturing production particularly for products using relatively unskilled labour. Building and maintaining competitive advantage means investing in the innovative talents of our people and exploiting the science base to the full so that good, new ideas are turned into world-beating new products and processes. Our future prosperity depends on our ability to compete on quality and know-how rather than on cost alone.

This can only be achieved in partnership. Together, we must continue and increase our efforts to improve the UK's skills base, promote closer links between education and industry, and provide a supportive framework for technological advance. We must continue to foster strong partnerships, supply chains, clusters and other business networks.

We must look to the long-term, delivering a platform for stability and steady growth to support manufacturing and British industry in the competitive global economy. I am confident that by working together we can ensure that British manufacturing and British business can match the best in the world particularly in London which is Europe's knowledge capital but also in the rest of the United Kingdom.